This is all you wan to know about Tax

Meaning of Tax
Benjamin Franklin once said, “Nothing is certain but death and taxes.” The term tax comes from a Latin word taxo, which means ‘I estimate.’ Tax can be defined as a levy or other type of a financial charge or fee imposed by state or central governments on legal entities or individuals. Local authorities like local governments, provincial governments, counties and municipal corporations also have the right to impose taxes.

Tax is a principal source of revenue for a country’s government. The Internal Revenue Service, or IRS, is a government agency that is primarily responsible for collection of taxes in any country. A country’s tax laws determine who should bear the tax burden, or who should pay tax. The rates, rules, and regulations of taxation differ from one country to another and they are complex in character.

With regards to rates of taxation there are two major types of tax, flat tax and variable tax. Flat tax can be defined as a tax structure with a uniform marginal rate. Normally, this term is applicable in scenarios where a corporate house or individual is being charged a single marginal rate. In case of variable tax, the rates keep changing over the time. The tax rate is imposed as a certain percentage of the income earned.

Tax Classifications
Direct tax:
A direct tax is a form of tax collected directly by the government from the persons who bear the tax burden. Taxable individuals file tax returns directly to the government. Examples of direct taxes are corporate taxes, income taxes, and transfer taxes.

Indirect tax:
An indirect tax is a form of tax collected by mediators who transfer the taxes to the government, and also perform functions associated with filing tax returns. The customers bear the final tax burden. Examples of indirect taxes are sales tax and value added tax (VAT).

7 Types of Tax and Ways You Pay Them
1. Income Tax: These taxes are paid out by anyone who earns an income by any means. Income taxes are subject to deductions and tax credits; they are usually not paid by people under a certain income or who have special situations such as a disability.

2. Property Tax: These are paid by anyone who owns property such as land, a home or commercial real estate. These taxes are often collected by the state and county to help fund their budgets. While income taxes are subject to deductions or credits, these taxes are often fairly rigid. Licensing fees on cars, recreational vehicles and watercraft are property taxes as well.

3. Consumptive Tax: These are taxes on sales goods or items that are subjected to being used by either an individual or business. While everyone understands that a small amount of money is added on to the purchase of goods in the stores, many people overlook other taxes. A fishing or hunting license is a tax. Toll road fees are taxes, even if they call it a user fee and so are travel fees.

Taxes Paid by Businesses
4. Corporate Tax: All business structures pay taxes on the income made in that particular business. Tax consequences are important when structuring a business. For example, sole proprietorships will pay their taxes through their regular income taxes, while a corporation pays quite differently.

5. Payroll Tax: These taxes are taken out by the businesses before income is distributed to the individual in exchange for the work that was done. These are commonly called “FUDA” and “FICA” and businesses need to match a certain amount of these payroll taxes. This is an additional cost of having an employee, and one reason why “independant contractors” have become so popular. These payroll taxes must be paid by the individual contractor if the regular business is not paying them.

Other Types of Tax
6. Capital Gains tax are paid on investments that have appreciated. Frequently these investments have been sold. Examples would be stocks, bonds, and real estate. Most losses can be “written off” on the federal income tax level, and like corporate taxes, these are usually best handled by professional tax preparers.

7. Inheritance or Estate Tax: Of the 7 types of tax, this is the only type where a tax can happen because of a death. A certain amount of estate money that may be passed on with no tax consequence. Once that level is met, however, the taxes are usually quite steep. Life insurance is often used to offset inheritance taxes, and is one reason insurance is so critical in estate planningfe.

Importance of Paying Tax
Every government needs money to perform civil operations and to administrate the running of the state. This money is generally collected from the citizens of the state in the name of the tax. So, it becomes virtually impossible for the government to run without the tax. Every state has his own way of collecting tax from its citizen. Ignorance about tax could lead one to variety of problems.

You should know how much you have to pay as tax. You will enjoy tax reduction when you contribute money to charity. It will be helpful if you consult a professional advice when dealing with income tax and other related matters. It is important for you to educate yourself about tax using the internet. Tax money also helps the nation to protect themselves as they cover the military expenses. It helps to develop the infrastructure of the state like roads, hospitals, legal protection, welfare security, environment preservation.

Tax helps to improve the standard of the education. It will be able to provide education to all citizens and helps to increase the standard of living of the citizen. Remember if no one is paying their tax, the society would disintegrate, the nation would crumble. Therefore, it is important for every citizen of the state to pay his or her tax regularly.

Citizen should not groan for the burden of the tax, instead they should think about the utilities that they receive from the tax. It can be simply said that you are paying rent to live in a wonderful country. While few people relish paying taxes, everyone enjoys having good schools, roads and services. In the end, taxes improve our overall quality of life.

Why should I pay tax?
Think about this, if we only paid for the services we need then there is no way we could afford it. For example if you wanted to go from City A to City B, can you afford to pay for the construction of road that connects those two cities? NO.

You open a tap and clean water flows out of it, if we were to put a filtration system on our own and a pipe that connects all the way to the nearby reservoir, it will cost just too much. Therefore we pay for these services in form of tax and use them as a whole society.

The result of not paying tax could result in penalty and prison time. The penalties can be civil or criminal penalties. So next time when the time comes to pay tax, do not feel too bad. It is your contribution to the services you receive in return.